While all eyes are set on PM Modi and his government with regards to the much awaited budget, it is highly expected that in order to encourage startups, especially e-commerce companies, the finance ministry may look at according beneficial tax treatment to their brand building expenses in the forthcoming budget. The government could allow startups and e-commerce companies to appropriate initial brand building expenses over several years for accounting benefits.
Rakesh Nangia, Managing Partner, Nangia & Co, mentioned while talking about expenses towards advertisement, marketing and sales promotion (AMP) and he mentioned that,
“E-commerce sector is still grappling with outdated laws not flexible enough to adjust to its requirements. This sector unlike the conventional business models does not need to invest much in tangible asset like plant and machinery. Its assets are generally intangible in nature, like the value of its Brand,”
Adding to the view above, KPMG Partner Tax, Amarjeet Singh said,
“The AMP expenses are very important for e-commerce companies to acquire new customers. A major part of this expenses is intangible and the government should allow identified category of AMP expenses to be capitalised,”
This much awaited initiative from the government would result in reducing the losses and prevent net-worth erosion of the company. With a view to get this on track, the government has decided to give host of tax incentives to encourage startups and some decisions are likely to be announced by Finance Minister Arun Jaitley in the 2016-17 Budget, to be presented on February 29. It is expected that the Finance Ministry may also work towards providing relief to e-commerce companies with regard to withholding tax where as on today the companies are required to withhold 10 per cent of the payment as tax.
This relaxation of withholding tax compliances by e-commerce companies, which are more in the nature of the startups, would enable them to focus more on the business with the reduced administrative burden resulting from relaxation. This inturn will allow them to work towards the other major activites like Brand building which will further allow them to enhance operations.